If you’ve been in the crypto space for some time, you’ve probably heard about crypto burning. You may have wondered how you even burn digital money? The answer is more straightforward than you might think.
Cryptocurrency burning is the process of sending cryptocurrency, or other crypto tokens, to a digital address where the crypto cannot be retrieved. The name given to digital wallets from which you cannot retrieve assets is called a burn address or dead wallet (link). The purpose is to permanently get rid of the cryptocurrency and eliminate it from the available supply. In the non-crypto space, it would be equivalent to dropping a diamond into the bottom of the ocean, knowing you would never see it again.
There is no minimum or maximum to the number of coins a person can burn at any given time. Crypto burns might range from as little as a few tokens to many trillions. Anyone who owns cryptocurrency can burn it. All cryptocurrencies can be burned.
Why Burn Crypto Tokens?
Crypto users may burn tokens specifically to decrease the token supply available on the market. The theory is that a more limited pool of crypto with steady or increased demand will yield higher prices. There is no guarantee that the price will go up. Tether, the company behind the USDT stablecoin (link), occasionally burns USDT from their treasury to help maintain the value of USDT relative to the U.S. dollar. Ether is burned during every transaction on the Ethereum network as a function of how that particular blockchain works.
Crypto miners may also burn coins as part of a Proof-of-Burn (POB) system. In POB systems, miners must send a specified amount or type of cryptocurrency to a burn address to gain permission to validate cryptocurrency transactions.
In 2021, Ethereum founder Vitalik Buterin sent 410 million Shiba Inu tokens he was previously gifted to a burn address. The tokens were worth $6.5 billion at the time. Earlier that year, he had donated 50 trillion Shiba Inu to an India-based COVID-19 relief fund.
Binance, the company that manages the Binance token, BNB, has burned approximately 33 million BNB since 2017. The burns occur as part of the crypto maker’s auto-burn program, which is used to reduce the supply of BNB in circulation consistently.
In 2019, the Stellar Foundation (link) burned 55 billion Stellar Lumens (XLM), originally intended for giveaways and other promotions, as a move touted as better in line with the company’s mission. At the time, the XLM was worth nearly $4.7 billion.
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